Billionaire Gores Angles for Ahern Rentals: Corporate Finance

March 23 (Bloomberg) -- Don Ahern, who built Ahern Rentals
Inc. from mom-and-pop beginnings into an equipment empire with
$382 million of annual revenue, is running out of time to keep
his company out of the hands of buyout billionaire Tom Gores.

Ahern has until April to present a reorganization plan
after filing for bankruptcy in December. With the deadline
approaching, Ahern Rentals’s $236.7 million of 9.25 percent
second-lien notes are soaring as speculation mounts that Gores’s
Platinum Equity LLC, which already runs equipment renter Maxim
Crane Works LP, will use its stake in the debt to take over,
according to two investors in the securities, who asked not to
be identified because the negotiations are confidential.

The company’s plan to take advantage of a boom in Las Vegas
backfired when construction slowed and profit plunged. Don
Ahern, 58, doubled his company’s debt burden to $611.2 million
from 2005 to 2008, using that cash to add about 16,500 lifts and
other pieces of equipment. Now Ahern, whose father opened his
first store in 1953, faces the prospect his company will become
the latest of Gores’s more than 100 acquisitions.

“Creditors likely would gain control of the equity in a
reorganization,” said Ed Mally, who tracks Ahern as head of
institutional research at Imperial Capital LLC, an investment
bank in New York. The creditors may push for a plan that
includes a rights offering, in which second-lien noteholders and
management put up more money in return for stakes in the
reorganized company, Mally said.

Notes Rise

Don Ahern owns 97 percent of the rental-equipment chain,
with his brother John holding the remainder, according to a Dec.
22 bankruptcy court filing by Howard Brown, Ahern’s chief
financial officer. Brown said no one from the company would
comment, and Mark Barnhill, a partner at Platinum Equity,
declined to comment.

Ahern’s notes climbed to 56 cents on the dollar on March 15
to yield 54.8 percent from 20.5 cents on Dec. 16, according to
Trace, the bond-price reporting system of the Financial Industry
Regulatory Authority. Platinum Equity owns the majority of the
securities, according to the court filing.

Ahern Rentals also owed $259 million on a revolving credit
line and $95 million on a term loan, plus accrued interest,
Bloomberg data show.

“They have a right to be paid in full before the equity
holders get a dime,” Douglas Baird, a law professor at the
University of Chicago, said in a telephone interview. Baird said
he wasn’t familiar with Ahern.

‘Our Appetite’

Gores, 47, founded Platinum Equity in 1995 and built a $2.4
billion fortune by buying and turning around a series of
industrial companies, making him No. 180 on Forbes magazine’s
list of the richest Americans. Since becoming wealthy, he’s
indulged other interests. In 2007, he produced “I Know Who
Killed Me,” a horror movie starring Lindsay Lohan, and last
year, he bought the Detroit Pistons basketball team.

Platinum Equity said it plans to expand its equipment-rental business by buying competitors. In 2008, Gores’s buyout
firm acquired Maxim Crane Works, now the eighth-largest company
in the industry, according to the trade magazine Rental
Equipment Register.

“Our ambitions are to be a consolidator,” Louis Samson,
the Platinum Equity principal who led the transaction, told the
trade publication in 2009. “There’s no limit to our appetite.”

Gas Station

Ahern Rentals is the industry’s seventh-largest company,
according to the magazine. John Ahern, Don’s father, founded it
59 years ago when he and his wife Martha bought a gas station on
the Las Vegas strip, according to Ahern’s website. Don Ahern
took over as president and chief executive officer in 1994,
regulatory filings show. “I am the youngest of four children
and seemed to be destined to steer the company into the
future,” Don Ahern wrote on the website.

“When he took over the company, it was around the time
when Las Vegas really began to boom,” Michael Roth, the editor
of Rental Equipment Register, said in a telephone interview.
“Ahern really owned that town.”

The company issued the second-lien notes in December 2005,
Bloomberg data show. Over the next three years, Ahern opened 21
stores, expanding into Kansas, North Carolina and Oklahoma, and
increased its rental-equipment fleet by 75 percent, regulatory
filings show.

‘Construction Died’

Earnings before interest, taxes, depreciation and
amortization, a common measure of profitability, almost doubled
to a peak of $150.1 million in 2008, according to Brown’s court
filing. The next year, the housing market collapsed. Ebitda
dropped 55 percent to $67.7 million, then slid to $53 million in
2010.

“When the recession hit -- and it particularly hit Vegas
pretty hard -- construction died there,” Roth said. “There was
nothing to do with that equipment.”

Ahern moved some of his fleet out of Las Vegas and opened
24 new stores in 2009 and 2010, trying to find customers to rent
the equipment he’d borrowed money to buy, Brown said in the
filing. The gambit didn’t pay off quickly enough for Ahern to
attract new lenders and refinance its debts, according to
Imperial Capital’s Mally.

Now Ahern’s business is recovering, along with the rest of
the rental-equipment industry, giving it more leverage in
bankruptcy negotiations, Mally said. Ebitda is projected to
improve to $80.5 million in the year ending this month,
according to a court filing dated Jan. 13 by Jonathan
Brownstein, who advises Ahern at Oppenheimer & Co. Inc.

“On an operating basis, the management team has done a
great job of turning the company around,” Mally said.
“Creditors would want to argue for a lower valuation to capture
more of the equity.”

Reorganization Plan

Under U.S. bankruptcy law, Ahern has the exclusive right
until April to propose a reorganization plan, which creditors
must approve. Ahern’s lawyers indicated at a hearing last week
that they would seek an extension, according to Michael Baxter,
a lawyer at Covington & Burling LLP who represents the official
committee of unsecured creditors. While owners of bankrupt
companies sometimes use this right to stall, by law the period
can’t be extended for more than a year and a half, Baird said.

“You can always gamble on resurrection,” Baird said.
“You can always hope that things will turn around so much in 18
months that the equity is back in the money.”

Ahern won’t give in easily, according to Roth of Rental
Equipment Register.

“He’s very committed to paying everybody,” Roth said.
“He built this thing with his own sweat.”